Phil explains 403b Supplemental Retirement Plans
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My name is Phil Ratcliff and I want to thank you again for watching another one of our informational videos. This one is on 403b’s, what they are, how they can be useful and some of the general rules to them.
A 403b generally is a 401k for a non-profit. Now there’s some nuances. You can’t have stock in a 403b, which makes sense because non-profits don’t have that and there’s no profit sharing, which makes sense because non-profits don’t generally have profits. In that respect there are some differences, but really the difference is 403b, 401k, just different subchapters of the IRS tax code to allow different employers to offer retirement benefits and savings accounts for their employees.
Your 403b is a very important part of your benefits because as we continue to go through time and the pension systems like OPERS and STRS and Social Security are having to reduce their payouts to employees, citizens, etcetera and these are a very important income streams for most people. So as we go forward, more and more people are going to be more and more dependent on what they save for themselves.
When you look at saving for yourself, you have a few options. 401k`s are really in the media a lot, that’s why people know it and I used that analogy to begin with. IRAs are great, you have a lot of investment freedom, but if you make over a certain amount of money, you can’t contribute to them anymore. When you are able to contribute to them, it’s about 1/4 what you’re allowed to put into a 401k or a 403b so they’re just not quite as powerful. They become very powerful later on in your investment life cycle because they have that investment freedom and we can roll over 401k’s and 403b’s into them.
Right now your 403b is very important in terms of your accumulation and so really when you say, “How much should we save? What should we do?” Well how much you should save is really a factor of when do you want to retire? Do you want to retire early or later? How much have you saved already? Do you have a certain amount built up in this pension or in Social Security? How are those things going to work together? It can get a bit complex. But really as a general rule, I try to tell most of my clients, as long as they’re not too far behind, if you’re in a 403b that’s coupled with Social Security, you should be saving somewhere around 20% minus whatever your employer matches and if you are at, say, a public institution where you’re in OPERS or STRS, then you should really be looking at trying to save 10% into addition into what’s going in to your pension. Your 403b, for most people, is going to be the vehicle to use.
Then beyond that, if you’re in a public institution and you’ve got to decide, “Who do I use as a provider?” Most of the private employers and non-profits outside of government employment, there’s just one institution. Maybe that’s TIAA CREF or MetLife or Vanguard, whoever, but you just got to go with it. When you come to a university, there can be multiple choices. Governments have that benefit over the private side of things. I made another video saying why choose rF (rebel Financial) at the university, that you can view if you’re in that circumstance.
Now really, this 2014, if you’re under 50, you’re able to save about 17,500 per year. If you’re over 50, we’re at 23,000.
This gives you some of the general rules about your 403b. I can’t go much into investment selection without speaking to the individual and knowing what your goals and what so.
Hopefully this was useful for you. If you’d like to delve in deeper or have a more personalized appraisal of your situation and what you should do, please give us a ring, shoot me an email, there’s a little part on our website that says, “Schedule an Appointment”. You can schedule an in person appointment at our office. A lot of times I’ll be on certain campuses or you can schedule a web conference.
Again, thank you for your time and we wish you the best of luck going forward.